KPIs via Simulation: coolstandings

There are days when the overcommunicated concept of KPIs (key performance indicators) and Dashboards frustrate me.

Which is why I adore coolstandings.

Traditional baseball metrics combine to tell a story. Wins, losses, winning percentage, games behind the leader, runs scored, runs scored by the opposition --- all of these metrics appear on the typical baseball dashboard. Our job is to look at thirty teams, and understand what various combinations of metrics suggest.

It's easy when evaluating the Seattle Mariners. It's much harder when evaluating my beloved Milwaukee Brewers, a team that has the second best record in the National League.

Look at the column at the far right of the web page / dashboard. This metric tells the outcome of a million simulations of the remainder of the baseball season. In about fifty percent of the simulated runs, Milwaukee qualified for the playoffs.

This is all that matters --- take all of the KPIs you have on your dashboard, and TELL ME WHAT IT MEANS!!!

Those of us who are in the data mining and business intelligence arm of the online marketing, catalog marketing, retail marketing and multichannel marketing world can use this principal to our advantage --- create a unifying metric that predicts what might happen in the future, given current KPIs.

Effective Use Of Your Database

At some point in the past five years, you probably invested in your customer database.

Maybe you built a series of normalized tables ... elegantly designed in a way that would make any IT professional proud. Maybe you hooked up Business Objects or MicroStrategy to the database, believing that you could answer any question you could think of.

Maybe you integrated your web analytics tool with your centralized customer data warehouse, expecting lightning bolts to appear from the sky about the casual visitor who browsed eight important landing pages before buying something in the store.

Or maybe you outsourced your database to a quality vendor who specializes in said activity.

I'm guessing that you're still dissatisfied with what you have.

You've probably learned the following equations:

• People > Database Design
• Database Design > Software
  

In other words, when crafting your database marketing platform, you focus on people first. One gifted query analyst or statistician means far more than any database you'll ever design. Far more!!

Database design means more than software. You need a series of summarized tables for campaign management. Don't ever let your software vendor or IT leader tell you not to store detail-level data (one row per item purchased, one row per page viewed). Your data expert needs the detail-level data to answer all the questions that cannot be answered by summarized fields.

Once those two aspects of the equation are solved, get good software.

Effective use of a database requires us to realize that people are more important than database design, and that database design is more important that software. This spring, many of you are communicating to me that your organizations view this the other way around ... you are outsourcing your analytical staff to India, you are outsourcing control of your databases, and you are relying on simple BI tools to query against summarized fields that don't adequately answer questions.

Let's turn this trend around!!

HIdden Variables: A Thorn In The Side Of Multichannel Customer Insight

Here's one for you.

On a recent Multichannel Forensics project, I had information suggesting that one channel performed much worse than the other half-dozen channels managed by the brand. I was ready to recommend that this company discontinue marketing through this channel.

Then I looked at another series of attributes. I discovered a "hidden" variable that caused the channel in question to appear bad. After accounting for this hidden variable, the channel actually performed above-average.

Let's look at a simple example, with just five customers.

	Future
	Value	Channels
Customer 1	$200.00	One
Customer 2	$50.00	One
Customer 3	$500.00	Two
Customer 4	$100.00	Two
Customer 5	$25.00	One
Multichannel	$300.00
Single-Channel	$91.67

This table illustrates the classic argument that "Multichannel Customers Are The Best Customers". Given the data available to the marketing department, the argument seems to make sense, right?

Now, let's overlay a "hidden" variable, one that tells us if the customer lives in an Urban zip code or a Rural zip code. Take a peek at the findings:

	Future
	Value	Channels	Zip_Code
Customer 1	$200.00	One	- Urban
Customer 2	$50.00	One	- Rural
Customer 3	$500.00	Two	- Urban
Customer 4	$100.00	Two	- Urban
Customer 5	$25.00	One	- Rural
Multichannel	$300.00
Single-Channel	$91.67
Urban	$266.67
Rural	$37.50

Oh oh.

In this very simple example, being "multichannel" isn't the real issue. The real issue is that urban customers have access to stores, and can purchase merchandise online. The most valuable customers are urban customers, because they have access to multiple channels, while the rural customer truly has limited access to stores.

This doesn't mean you shouldn't invest in a truly wonderful multichannel experience for your customers.

Rather, our "world-view" is limited by what we can see. In multichannel marketing, we can't see much!

Hidden variables require two parties to collaborate appropriately. Leadership must be able to ask appropriate questions that cause hidden variables to expose themselves. Business Intelligence teams must be able to construct queries that yield variables that expose hidden variables.

Multichannel Business Intelligence isn't the only place where hidden variables play a role. Web Analytics and E-Mail Marketing professions are marred by hidden variables. Unless gifted, highly experienced professional have an intuition for "what to look for", it is possible that the real reasons for a successful conversion rate will not be identified.

Knowledge of hidden variables is a good thing. We don't have to know what the hidden variables are. We just need to know that something is lurking behind the scenes, influencing results. We need to question what we see.

Customer Modeling

Sometimes you wonder what your department should be named.

Back in 1994, after spending my entire career (6 years) scratching and clawing my way to the title of "Manager", I was offered the opportunity to name my new department. Our job was to build statistical models that determined the customers that received Lands' End catalogs.

Given my extensive management experience, I opted for a no-nonsense name ... "Customer Modeling". After all, that's what we did, we modeled customer behavior!

We printed business cards. We changed the department name in our internal business systems. I was one happy manager.

About a week later, the phone rang. The conversation went something like this:


Phone: "Hi, may I speak with the manager in charge of modeling?"

Kevin: "Yes, you're speaking with that person. My name is Kevin, how may I help you?"

Phone: "Yea, my name is Chick Mather, I'm a partner at Pyramid Agency. Listen, I represent a model, Therese Jones. You might be familiar with her work. She's a long-time model in the Garnet Hill catalog, and recently did a photo shoot with The Territory Ahead catalog. I'm hoping I can send her portfolio to you, as I think she'd be a wonderful addition to the Lands' End brand. Please provide me with your name and address, and I will expedite her portfolio to you."

Kevin: "Huh?"

It only took a dozen calls, over a two week period of time, to realize I'd made my first mistake as a manager.

Customer Modeling became Analytical Services, until I realized that people focused more on the word "service" than the word "analytical". All too often, we were asked to tell folks how many people used the code "XG143" to purchase chinos. We wanted folks to ask us meaningful questions, strategic questions. By being a "service", you set yourself up for a role where you provide counts.

So in 2001, I went with the term "Business Intelligence".

Years later, I remember a finance person telling a roomful of my peers that the term was an oxymoron. A year later, that term was trumped by a new leader offering the name "Consumer Insights".

In the past fifteen years, we've stripped modeling, analytics, services, business, and intelligence from what we do. Now we simply provide insight.

For most of the folks we work with, that's what they really want ... insight. If they only had the facts, they could make great decisions.

It's a shame we did such a poor job that nobody cared about the modeling, analytics, services, business, and intelligence we can provide.

Career Opportunities And Perceived Value

Tell me the last time you observed these titles at a business-to-consumer organization (non-vendors):

• Vice President of E-Mail Marketing.
• Sr. Director of Web Analytics.
• General Manager of Business Intelligence.
• SVP of Catalog Circulation.
  

It's interesting that many businesses have an executive in charge of information or technology (CIO or CTO). Many businesses also have pay scales that are very favorable to information technology employees. In other words, an e-mail manager might earn a base salary of $75,000 per year, while a comparably skilled information technology individual might earn $90,000 per year. The information technology individual might have a limited career path, but at least she gets compensated for the unique skill set she offers to her company.

Which brings us to the typical e-mail, catalog circulation, web analytics, SAS/SPSS programmer, data miner, or business intelligence individual.

What is the career path for the web analytics individual using software that doesn't even capture 100% of online sales?

What is the career path for an e-mail manager that is given no budget, but is criticized for generating only $0.09 per e-mail delivered?

What is the career path for the SAS programmer who provides the intelligence that an information technology individual cannot provide, yet is considered a "computer geek" by Sr. Management?

What is the career path for a catalog circulation manager that is criticized by eco-friendly organizations for cramming unsolicited junk mail down the throats of helpless consumers?

In my opinion, there is one common theme across each of the four jobs I described ... perceived value.

The e-mail marketer is a spammer. The web analytics individual measures only one channel, and cannot frequently tie out net sales to finance-based reality. The SAS programmer is a computer geek. The catalog manager is always wrong, why would you mail a catalog that 98% of the people hate, can't you only mail the catalog to customers who will purchase?

Remove the information technology expert from your business, and your order entry system might stop taking orders. That's what "perceived value" is all about.

Stop sending e-mail campaigns, stop sending junk mail, stop creating a report that requires a complex merge of e-mail address and multiple mailing addresses, stop showing that conversion rates are flat, and who cares?

Career opportunities are often based on the perceived value of the individual. I know this is true, I've experienced it. I've been told by leadership that I'm not qualified to do any other job than an analytics-based job.

Conversely, merchants, those who choose product, are perceived to have high value, perceived to be able to lead finance individuals or marketers or information technology experts or call center leadership.

So many of my loyal subscribers are e-mail marketers, catalog circulation experts, web analytics professionals, or business intelligence / data mining wizards. Collectively, we have two problems.

• We have low perceived value.
• We do a terrible job of marketing our skills.

Not surprisingly, these two issues are interrelated.

There are three types of employees in the multichannel world.

• Employees with scarce skills, like the folks in information technology.
• Employees with leadership potential or those with the ability to "move the needle" on sales. Think CMOs and merchandising executives, as examples ... especially CMOs, folks who either drive a big increase in sales, or are kicked-out within two years.
  
• The rest of us.

In order to reap the benefits of career opportunities, "the rest of us" must market ourselves as indispensable individuals. Either we cannot be easily replaced, or we provide such significant value (sales, profit, leadership, consumer insights) to the business that we cannot be ignored, or we must market our value to the rest of the organization to increase our perceived value. Otherwise, we must be at peace with our lot in life.

At this point in time, few promotional opportunities exist within multichannel brands for my readers, causing my readers to switch jobs across brands, or to venture to the vendor side of the equation to find opportunities. It might be time for us to start marketing our abilities, to begin increasing our perceived value, or to actually prove that we are highly valuable.

Vice President of Business Intelligence And New Business Development, American Girl

A fundamental shift in the job requirements of analytical individuals is occurring across Corporate America. The shift is not positive for E-Mail Marketers, Catalog Circulation Marketers, Online Marketers, Business Intelligence Analysts, and Web Analytics staff.

Read this job description, found on the Marketing Sherpa Job Board, for a VP of Business Intelligence and New Business Development at American Girl.

This position proactively leads the identification and development of actionable consumer insights, market and competitive understanding. This person will translate information gained through the Analytics Services and Consumer Insights areas into actionable implications and assist in the application of these insights into the American Girl strategic plan. Requirements: *Bachelor's degree, Master's degree (MBA) preferred *Minimum of 10 years of experience working in Consumer Products Industry to include Consumer Research and Analytical Services or significant experience in consulting with a major consulting firm. *Direct Marketing Analytics experience at a multi-channel company preferred *Experience contributing to the strategic planning process preferred *Familiarity with multiple channels of distribution, with special emphasis on direct mail and branded retail preferred *Significant P&L experience preferred *Consulting for a major consulting firm preferred.

Notice how this position focuses on using the insights of the Analytical Services and Consumer Insights areas. Notice that this person will come from the Consumer Products Industry, or will have Consulting experience from a major consulting firm (preferred).

In the past five years, our zeal to be "multichannel marketers" caused us to scatter in a dozen different directions --- all honing our skills in different specialties, becoming experts at a tiny fraction of what matters to our customers. We failed to develop a global view of our business. Our leaders don't have confidence in having a web analytics expert do anything else than study web analytics. Our leaders don't believe the e-mail marketer can also drive a social media plan, or can manage television advertising campaigns.

To thank us for diving headfirst into a niche, becoming a subject matter expert, our companies are looking to hire leaders who know how to position eight varieties of Cheerios among potential customers, or know how to articulate opportunities to what is know as individuals in the "C-Level Suite".

If you're an individual working at a catalog, online, retail or multichannel organization, and you have less than ten years of corporate experience, this is a really good time to change course.

Instead of being the expert at working with CheetahMail to get e-mails delivered through AOL, or being the expert at getting CoreMetrics to help you accurately measure the effectiveness of various landing pages, or being the catalog circulation expert who measures the LTV of Abacus-sourced new names --- become the person who is the expert at knowing how EVERYTHING FITS TOGETHER, telling a story that helps executives know what they need to do to be successful.

Right now, your business leaders don't believe in you. They believe in a person who knows how to build a business plan for Cool Ranch Doritos, who knows how to speak to executives. This is the third job description of this nature I've run across over the past four months.

One person, working a division that is now being led by one of these "newly qualified leaders", told me that the new leader (with qualifications similar to this job description) communicated that the circulation folks "knew nothing of actual customer behavior".

Ouch.

It's time to stop talking about RFM, HTML vs. Text, Black-Lists, SEO, PPC, CGM, DMPC, Conversion Rate or Landing Pages.

It's time to stop talking about subject line testing as a "strategy".

It's time to stop talking about paid search as a "strategy".

It's time to stop talking about getting e-mails through GMail as a "strategy".

It's time to stop talking about working with Abacus or Millard/Mokrynski as a "strategy".

It's time to actually create actionable business strategies that merchants and executives understand, and can act upon. More important, it's time for us to be able to articulate our strategies in a way that executives and merchants understand.

If we fail to do this, the folks who manage the "Twinkies" brand will do this for us. I've been impacted by this evolution in job description. I don't want for you to be impacted.

Your thoughts?

Friends of MineThatData: November 19, 2006

Here are a few good articles from the Friends of MineThatData.

Occam's Razor: A good discussion about measuring the "real" conversion rate.

Luna Metrics: Twelve highly-detailed suggestions on improving blog conversion.

Rimm-Kaufman Group: A discussion with catalog expert John Lenser.

Digital Solid is hosting this week's Carnival of Marketing.